The Euro

What does 2017 have in store for the currency markets?

Last year proved to be one of great change, and many of these changes had a significant impact on exchange rates. 2017 may prove to be one of even greater change, and how these changes affect exchange rates will be crucial for those with a currency exchange requirement. Let’s take a look ahead to some key events that we think will affect the currency markets, and how you can limit your exposure to them.

Key 2017 events:

  • March 2017 – Article 50 is likely to be invoked. Uncertainty surrounding the uncoupling process and future trade negotiations are likely to weaken sterling and the general consensus is that it’s likely the Pound will fall when this happens.
  • 17th March 2017 – Dutch elections. The Dutch have already voiced a desire for a referendum. A ‘vote for change’ could trigger this, which may weaken the Euro.
  • April/May 2017 – French elections. A right wing win would bring about the possibility of the French having their own referendum and would therefore also be EUR negative.
  • September 2017 – German elections. Unlikely to see Merkel ousted, however a growing number of Germans are unhappy footing the European bill, and if Merkel doesn’t win another term, the Euro may weaken.

Each of these elections could move GBP/EUR rates significantly and have the potential to deliver a blow to the EU, each more severe than the last; the Dutch go first in March, the French in May and finally the German’s in October. With Gert Wilders and Marine Le Pen having surprise leads in some polls for the far right, the single currency could be in for a real shoeing. Conversely, should these three votes go the other way it would be a resounding victory for the EU with Francois Fillon and Angela Merkel being devoted Eurocrats. This would strengthen the Euro and make it more expensive to purchase.

Taking the above into account, there is the risk that GBP/EUR rates may fall in the short term as the UK invokes Article 50. Uncertainty is what has been keeping Sterling under pressure since last June, and while negotiations are on-going this uncertainty could increase. Also, as inflation is expected to rise, in part due to a weaker Pound, goods will become more expensive and consumers may then start to reconsider their carefree approach that currently seems to ignore the economic headwinds. Wage growth is unlikely to keep up with inflation, and the effects of a weaker Pound will be more keenly felt.

On the other hand, the uncertainty may evaporate as it becomes clearer what a post-Brexit UK economy will look like, which could increase business confidence and drive the Pound higher. Political events that I have outlined above will also be a big driver for the value of the Euro, with the potential for it to weaken significantly and pull GBP/EUR rates back up again. So as you can see, GBP/EUR is being pulled in both directions by events both in Britain and abroad, and this metaphorical tug-o-war will be the main driver of exchange rates for the short to medium term.

All this change presents risks for most, and opportunities for many. The only thing that is certain is that 2017 will be more unpredictable than any other year in recent history. With all this uncertainty and constantly evolving situations it is more important than ever to ensure you protect yourself against any adverse movements. Simply leaving things to chance and hoping that exchange rates go up is not recommended.

If you need to convert currency and are worried about rates moving against you, a sensible option to consider is a ‘Forward contract’. This allows you to lock in the current rate of exchange and only lodge 10% of the total that you will need to convert. This removes your exposure to what is likely to be an extremely volatile period, and protects you against the rate falling. Crucially, it allows you to budget effectively.

Alastair Archbold
FX Manager

New Year and some new laws in France.

The price of diesel is going up by one centime and the price of petrol being reduced by one centime. This should remove some of the price advantage that diesel, considered more of a pollutant, has had over petrol.

If you drive in Paris you will have to have a vignette to indicate how polluting your car is. When the pollution levels are very high, you may need to leave your car at home.

I have mentioned this before, but it there is now a ban on vehicles having tinted front windows – windscreen and front side windows.

Talking of vehicles autoroute tolls are set to rise by an average of .8%.

There is now a ban on fruit and vegetables being sold in plastic bags. Shopkeepers must use biodegradable paper for example.

Finally – cigarette cartons must be in plain packaging and any that flout the law will be banned.

French presidential 2017 candidates views on real estate.

Real Estate: what are the proposals of the candidates on the right for the elections of 2017? Firstly all promise to change the loi Alur when they come to power. The vast majority want to favour buyers and investors by revising existing aid packages. Here are the main ideas: Nicolas Sarkozy replace the loan at zero percent by a system of guarantee for first-time buyers, reduce CGT to 15 years… Alain Juppé: favour social housing, diminish restrictions on letting properties… Bruno Le Maire: lower notary fees on purchases of principal residences, lower VAT on first–time buyers for new housing …Nathalie Kosciusko-Morizet: boost property purchases by increasing the scope of zero percent loans, encourage renovation projects… Jean-François Copé: fix VAT at 10% for first-time buyers, put a ceiling on income from property to 33%… Jean-Frédéric Poisson: suppress all the aids for purchasing but reduce the taxes on all property purchases.

THE REFERENDUM & FRENCH PROPERTY

THE REFERENDUM AND FRENCH PROPERTY.

The decision has been made and negotiations have yet to start, but here is my view of the possible effects on British French Property buyers and owners following the referendum.

France, as well as Spain and Italy, have been very popular with British home buyers for many years, and certainly before the Common Market came into being. We have voted to leave so we might be in the same situation as the Americans and Australians who have been buying in France for many years – and live there very happily!  If my friends and business associates in France are anything to go by, the British will continue to be very welcome.

Will there be any possibility of the British losing the ownership of their properties if we leave? Definitely not!

Would we need to apply for a visa to visit France and other EU countries if we vote to leave? In my view this is unlikely as there would probably be a reciprocal arrangement with all the EU countries.

It is possible that the British may need to apply for a fixed term ‘carte de sejour’ / permit to live in France and reapply before each expiry date. They may have to prove that they have enough wealth so as not to be a burden on French social security. They may even have to take a language test – but if living in any overseas country a basic knowledge of the language is essential.

With regard to healthcare the current reciprocal arrangements may be terminated, although members of the European Economic Area have reciprocal arrangements with the EEC countries. Of course, there are insurance companies specialising in this field – so I do not see a problem.

The state pension situation for British people residing in France and other EU countries will have to be agreed. There is some doubt as to whether or not state pension payments to the British residents in France will be protected by the ‘triple lock’. We can only hope that the government will not be vindictive and that the current situation will continue.

Mortgages when buying in the EU may be a problem in that interest rates may be higher for British or other ‘foreign’ buyers and higher deposits may be necessary. Banks work across borders and I feel sure that any problems will not be too onerous.

There may be increased social charges and / or capital gains tax when selling.

With regard to personal taxation, there should be little or no effect as Britain and France have a dual tax treaty.

It was inevitable that in the event of a vote to leave the EU there would be turmoil in the financial markets. However, steps have been taken which we hope will stabilise the market.

On balance I do not see any serious problems for French property owners and buyers. Property prices remain very low in most areas, and even with the current exchange rate it’s not a bad time to take advantage and buy!

Newsletter no. 16

Newsletter No. 16

The Market. The Pound continues to be strong with the mid-commercial exchange rate at the time of writing around 1.37€ / £1. In many regions property prices have been reduced further.

Paris. We focus on properties there as our support for the City of Light.
Sadly, darkness fell on the city with the terrible act of terrorism on 13 November. However, we receive information from several sources showing that life goes on and it appears that the resilient citizens of Paris and visitors are out and about again enjoying the shops, bars and restaurants. The property market does not appear to have been affected and, with the strong pound, a pied-à-terre has become more affordable for British buyers. Whilst property prices have dropped in many regions of France, Paris is a more stable market and has not been affected to the same extent.

The City of Paris is divided into different arrondissements or administrative districts which are numbered from 1 – 20. They spiral outwards clockwise from the 1st in the centre of the city. The city is also defined by the river Seine which has the 5th to 7th and 13th to 15th on the left bank – all others being to the north / right bank. Most of the main attractions are to the centre of the city. Encircling the 20 arrondissements is the highway known as the Périphérique. (It is very dangerous in our experience!) Outside the Périphérique are the banlieues some of which are definitely to be avoided.

Property prices in Paris are determined by the m² – the highest being in the centre. A 6th arrondissement apartment might be around €12,000 per m² whereas in the 19th around €6000 per m².

We are fortunate to have a partner agent in the 15th arrondissement who has an association with other agents in and around Paris giving access to properties in all areas. We show a few on our web site, but it’s a fast moving market.

For our selection: http://www.primefrenchproperties.com/ile_de_france.asp then click View All Properties.

Property Search. We will always be happy to search for properties if you cannot find what you want on our web site. Our prices are the same as those of our partner agents and include all agency fees.

Christmas and New Year. The festive season is upon us and whilst the French tend not to shut down for two weeks, they do take off more time than in the past. If you are thinking of looking at properties during the Christmas / New Year period, please check to see if the agent will be open.

We take this opportunity to send our best wishes for a Merry Christmas and a Healthy, Happy and Prosperous New Year.

(Please ask if you would like the full version with a selection of properties).

 

Drainage

Drainage in France

In many areas of France, especially in the countryside where mains drainage is not available, sewage has to be treated on site – usually a ‘Fosse Septique’ (Septic Tank). However a new law was passed in 1992 which gave responsibility for the overseeing and regulation of old and new waste water installations to the local communes, i.e. the Marie / town hall.

This law stipulated that all household waste liquids have to be processed by means of a ‘Fosse Toutes Eaux’. This is a treatment / filtration system that ensures only treated waste is released into the environment.

If buying a French property, ensure that you know whether or not the drainage complies with this law.

Macron Law

Emanuel Macron, the French Economy Minister, has slipped in a sly clause in the decree that has been called the ‘Loi Macron’ to the effect that the 7 day cooling off period will be extended to 10 days after the compromis / preliminary contract has been signed. This is likely to slow down the conveyancing process. This law is now in force.